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Decision Making

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Lakewood Fashions must decide how many lots of assorted ski wear to order for its three stores. Information on pricing, sales, and inventory costs has led to the following payoff/net profit table (stated in thousands of dollars).

Order Size Demand
Low Medium High
1 lot 12 15 15
2 lots 9 25 35
3 lots 6 35 60

a. What decision should be made by the optimist and why?

b. What decision should be made by the conservative and why?

c. What decision should be made using the minimax regret approach and why?

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Solution Summary

Solution determines the lot size based upon various decision making models.

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Please refer attached file for better clarity of tables and formulas.

Order Size Demand
Low Medium High
1 lot 12 15 15
2 lots 9 25 35
3 lots 6 35 60

a. What decision should be made by the optimist and why?
An optimist will choose the highest value in the payoff table i.e. he will choose maximax critetia.

Order Size Demand
Low Medium High Maximum Payoff
1 lot ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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